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Growth or equality ? Losers and gainers from financial reform

Costas Azariadis () and David de la Croix ()

No 2002058, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We explore the consequences of liberalized credit markets for growth and inequality in a lifecycle economy with physical and human capital accumulation, populated by households of different abilities, and calibrated to match the longrun economic performance of a panel of emerging countries. Relatively modest improvements in extending credit to the ablest households appear to have large economic consequences: upfront costs (slower initial growth, higher income inequality) followed by delayed benefits (faster long-run growth). Reform also lowers lifecycle utility for a substantial majority of currently active households. Premature liberalization in the least developed countries (low TFP or capital intensity) may redirect economic growth towards a poverty trap.

Keywords: Liberalization; credit constraint; poverty trap; human capital; emerging economies (search for similar items in EconPapers)
JEL-codes: O41 O16 J24 D31 (search for similar items in EconPapers)
Date: 2002-10
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